Monday, May 7, 2012

China’s Footprints in Sri Lanka and India’s Concerns

Dr. N. Manoharan

Senior Fellow, VIF

China’s footprints in Sri Lanka go beyond the so called “String of
Pearls” framework. Being a “time-tested friend” of Sri Lanka, China is
one of the major players in the island in many fields. The diplomatic
engagement goes to 1950s though intensity of it has picked up
tremendously in the recent years.

In the present context, the bilateral relations between the two
countries are cast within the broad structure of the ‘China-Sri Lanka
All-round Cooperation Partnership of Sincere Mutual Support and
Ever-lasting Friendship’ proclaimed in 2005. The Chinese involvement
ranges from infrastructure development, economic aid, oil exploration,
investments, trade and a strong diplomatic support to the island state
when in need, especially in the wake of human rights accountability
issue that emerged after the end of ‘Eelam War IV’.

Infrastructure development having wider strategic ramifications is
the main Chinese footprint in Sri Lanka that has attracted considerable
attention of India. Some of the important infrastructure projects
developed by China in the island state include Hambantota port,
Katunayake-Colombo Expressway, the Norochcholai Coal Power Project,
Maththala Airport, Colombo South Harbour Expansion Project, 661-room
Shangri La hotel and the Center for Performing Arts in Colombo.
Statistically speaking, funding from China accounts for more than half
of Sri Lanka’s construction and development loans. In value terms, it is
estimated at over USD six billion; more than any other country.

The most talked about project is Hambantota port. The first phase of
the port was completed in 2010 by the China Harbour Engineering Co. Ltd
at a cost of $360 million. It includes a high-quality passenger
terminal, cargo handling, warehousing, bunkering, provisioning,
maintenance and repair, medical supplies and customs clearing
facilities. The harbour is strategically located not only for the
Chinese merchant vessels and cargo carriers sailing to and from Africa
and the Middle East to make a stopover, but can also be used by any
military fleet. A strong foothold for the Chinese in Hambantota would
allow them to have dominance over a vast area of the Indian Ocean
extending from Australia in the east, Africa in the west and up to
Antarctica in the south. It may not be difficult for China to closely
monitor all ships – military and non-military – that shuttle between
east and west coasts of India encircling Sri Lanka. Ironically, Colombo
had proposed building the Hambantota port as a joint venture with India,
but New Delhi had let the offer pass.

When it comes to infrastructure development, India’s involvement in
Sri Lanka is less, if not insignificant, in comparison to China. Sri
Lankans rate the Chinese better in terms of timely completion of
projects, cost effectiveness and quality of infrastructure. Indian
companies have certain inherent disadvantages compared to their Chinese
counterparts. While most Indian companies are privately owned, Chinese
ones are state-owned and supported by state financial institutions like
China Development Bank Corporation, and Exim Bank. Profit motive comes
last for the Chinese companies. Their priority is to look towards
aspects like strategic advantages, diplomatic mileage and good will
gained through projects. Most importantly, in the Indian case, the
private sector and the government do not seem to complement each other’s
efforts and gains. Risk-averse Indian companies care less about
projection of Indian ‘soft power’ without much state support and
motivation. This point should be taken into consideration by the
government of India in its economic diplomacy.

Sri Lanka is not alone where China’s presence is increasingly seen.
Beijing has for long been building maritime and other linkages with,
apart from Sri Lanka, countries of eastern Africa, Seychelles,
Mauritius, West Asia, Pakistan, Maldives, Bangladesh, Myanmar and
Southeast Asian countries. The main objective behind is to ensure the
security of its sea lanes, especially unhindered flow of
critically-needed energy supplies from Africa and West Asia. At the same
time, these linkages have doubled up as virtual encircling of India,
which some experts call as “String of Pearls” construct.

Although India’s presence in reconstruction of post-war Sri Lanka is
huge, China’s involvement is also notable. It has already provided one
million dollars for the humanitarian needs. This apart, it gave tents
meant for IDPs worth 20 million Yuan. As far as economic engagement is
concerned, the volume of trade between China and Sri Lanka reached
nearly 2.1 billion US dollars in 2010 and grew further to USD 3.14 bn in
2011. The balance of trade is hugely in favour of China (ratio of 1:19
compared to 1:10 with India in 2011); yet Sri Lankans are not
complaining. China is Sri Lanka’s largest foreign investor and lender.
To cite recent figures, China gave USD 1.2 billion and USD 821 million
respectively in 2009 and 2010; this accounted for 54 percent of total
foreign loans in 2009 and 25 percent in 2010. Sri Lanka’s Central Bank
announced in June 2011 that China’s national currency, the Yuan
(renminbi), would be allowed to be used in international transactions.
On the other hand, the Indian rupee does not enjoy the same privilege,
despite India remaining as Sri Lanka’s largest trading partner and one
of the largest donors and investors.

The more the Sri Lankans appreciate is China’s diplomatic support to
Colombo against West-led call for international investigations on war
crimes committed during ‘Eelam War IV’. China, along with India and
Russia, was instrumental in defeating the UN resolution in May 2009
censuring Sri Lanka. China once again supported Sri Lanka when
US-sponsored resolution was passed in March 2012. When India insisted on
providing only “non-lethal weapons” to Colombo during the ‘Eelam War
IV’ considering domestic political implications especially in Tamil
Nadu, China liberally supplied requisite arms and ammunition to Sri
Lankan troops to defeat the LTTE. These fetched China tremendous good
will from the Sri Lankan government and the Sinhalese in general.

There is no free lunch, however. In return, apart from deeply
appreciating China’s help, Sri Lanka has time and again reiterated its
strict adherence to ‘one China policy’: “that the Government of the
People’s Republic of China is the sole legal government representing the
whole of China and that Taiwan is an inalienable part of the Chinese
territory.” Colombo does not seem to mind giving more leeway to Beijing
in the island to strengthen its economy, which is the top priority at
the moment. In the words of President Rajapaksa himself, “Sri Lanka’s
economy is currently at an important turning point and it is our
country’s strategy to enhance our ports-related economy.” Rajapaksa’s
vision is to “reposition Sri Lanka as the ‘pearl of the old Silk
Route’.” Colombo is more than happy to be one of the pearls in China’s
“String of Pearls”. In turn, India’s interests and concerns are not in
Sri Lanka’s radars, although the island state tries its best to do the
fine balancing act to keep both big powers of Asia in good humour, while
at the same time benefitting from both. To distinguish India from other
players, President Rajpaksa recently observed, “We are a non-aligned
country. Our neighbours are Indians. I always say, Indians are our
relations. From the time of Asoka, we have had that culture… but that
doesn’t mean we won’t get commercial benefits from others; from China,
or Japan, or whoever. They will come here, they will build and they will
go back. India comes here, they will build and they will stay. This is
the difference…” Keeping this in mind, development projects are offered
to both India and China from time-to-time. But, China is closer to the
heart of present Left-of-the-Centre regime headed by Mahinda Rajapaksa.

India’s involvement in Sri Lanka’s infrastructure development cannot
be underestimated. They range from helping fund the Matara-Colombo rail
line, the dredging and refurbishment of the Kankesanthurai Harbor, and
the renovation of Palaly Airport. India’s line of credit is about USD
$1.8 billion, although the figure is roughly half of China’s current
line of credit which stands at roughly USD $3.4 billion. Sri Lanka’s
preference, therefore, is known. It is now in a position to juggle India
and China, but is closer to Beijing, which has “no strings attached”,
at least overtly, to any of the projects implemented or aid granted. Sri
Lanka knows well that China will never demand to address the grievances
of Sri Lankan minorities through a reasonable negotiated political
settlement, and will not place restrictions on the involvement of any
other country in the island in any manner. Beijing’s interests in Sri
Lanka are purely strategic and, to a little extent, commercial.

India is not panicky about China’s footprint, but at the same time
concerned about the strategic implications. The main concern is the
possibility of use of infrastructure put in place by China against
Indian interests. In the Annexure of the India-Sri Lanka Accord of 1987
India and Sri Lanka have agreed that “Trincomalee or any other port in
Sri Lanka would not be made available for military use to any country in
a manner which is prejudicial to India's interest.” India trusts that
Colombo would abide by this provision seriously. But, caution is better,
given the fact that Sri Lanka has not fully abided by even the core
provisions of the Accord citing various excuses and justifications. To
flout this provision in the Annexure will not take much time. The matter
of concern for India is the possibility of dual-use mode of certain
infrastructure projects. Like for instance, China is allowed to have
storage and fuelling facilities at Hambantota, although India has also
been offered to enjoy the same facilities. Similarly, the Colombo port
that handles about 70 percent of India’s shipping is being modernised
with Chinese assistance. If China’s wishes, it can always turn these
projects to India’s disadvantage in a conflict situation.

New Delhi has indeed been taking various steps to address these
concerns. In a similar situation in the 1980s, India was assertive in
conveying its viewpoint. It in fact made sure that Sri Lanka was not
used by forces inimical to India’s interests through the bilateral
Accord of July 1987. But, in the present context, India has been dealing
the issue in a more subtle manner. India has to balance out between
regional peace, its own strategic interests and that of long-term peace,
and development of Sri Lanka. The key is to sustain bilateral ties with
Sri Lanka in the long run and make up for the lost ground.